Treasuries gain for first time in three days as confidence drops

“Treasuries are firmer amid an equity sell-off and the weak consumer data,” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “Even with generally positive economic data, the back end has been surprisingly firm.”

Bonds rose today even after Fed data showed U.S. industrial production grew 0.7% in February, beating a forecast for a 0.4% gain, after a 0.1 decline the previous month.

A separate report showed the cost of living rose in February due to a jump in gasoline prices. The consumer-price index rose 0.7%, the Labor Department reported, with the biggest jump in gasoline prices in more than three years accounting for three-quarters of the advance.

A retreat in fuel expenses this month signaled inflation will hover around the Fed’s goal, giving the central bank more room to continue steps to spur growth and curb unemployment.

Inflation Bets

The difference between yields on 10-year Treasury notes and inflation-indexed securities, a measure of consumer prices over the life of the debt known as the break-even rate, touched 2.6%, versus an average of 2.35% over the past year.

Treasury securities due in a decade or more are at the cheapest levels since 2011 relative to global peers with comparable maturities, according to the Bank of America indexes. Yields on Treasuries were 54 basis points higher than those in an index of other sovereign debt yesterday, the data showed. It was the most since August 2011.

“We are right around the level that economic fair value suggests so there’s not a lot of incentive to take a long term position,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “We’re seeing more in short term swings.”

China, the largest foreign lender to the U.S., increased its holdings in Treasuries in January by $44.1 billion, or 3.6%, the biggest boost since June 2011, the Treasury Department reported. The country owns $1.2645 trillion of the debt, the most since September 2011. As of January, China held 11.4% of outstanding marketable U.S. government debt.

Chinese holdings of longer-term notes and bonds rose to $1.259 trillion, also the most since September 2011. The nation’s bill holdings fell to $5.8 billion, from $6.3 billion.

Japan Holdings

Japan, the second-biggest foreign lender, raised its holdings of U.S. government debt by $4 billion to $1.1152 trillion, the first increase since October. Japan holds 10% of outstanding Treasury debt.

Foreign holdings of Treasuries rose to $5.6165 trillion in January, a 0.8% increase from the previous month, the biggest since October. Foreign investors held 50.5% of the $11.1 trillion in U.S. debt outstanding then.

The Fed remains the largest holder of Treasuries, with a total of $1.767 trillion.

The central bank bought U.S. government securities today due from December 2017 to November 2018. The Fed is purchasing $85 billion of Treasury and mortgage debt each month in a quantitative-easing program to spur economic growth and curb unemployment.